Amy has a portfolio with a beta of 1.26 but has decided to lower her investment risk.Adding which one of the following securities to her portfolio is most assuredly going to lower the risk of the portfolio?
A)A stock that has a covariance with the market of 0.89
B)A security that has a standard deviation of 11 percent
C)A security with a beta of 1.58
D)U.S.Treasury bills
E)A mix of small-company and large-company stocks

Question

Quizplus · Accepted Answer

U.S. Treasury bills are considered risk-free as they have virtually no default risk. Therefore, adding them to a portfolio will lower the overall risk of the portfolio. Adding any of the other securities (A, B, C, or E) will likely increase the risk of the portfolio as they all have a higher beta or standard deviation than the current portfolio.

Amy Has a Portfolio with a Beta of 1